Question: (a) Imagine you are trying to find the IRR of an investment project that has increasing estimated future cash inflows in each of the next eight years. You have tried a discount rate of 12% and have discovered that this results in a positive NPV for the investment project. Explain whether the project's IRR is more or less than 12%.
(b) Your hotel is considering two options with respect to a major overhaul of an existing restaurant. The restaurant will either be themed as an Italian restaurant, which will require the installation of a wood-fired pizza oven, or as a British pub which will require the installation of extensive bar facilities. It has been estimated that the Italian restaurant option will provide an IRR of 16% and an NPV of $420,000. It has also been projected that the British pub option will provide an IRR of 17% and an NPV of $350,000. From a financial perspective, explain which of the two options is preferable.